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The Pros & Cons Behind 3 Types of Loyalty Programs

If you looked inside 10 people’s wallets/smartphones today, you’d most likely find at least 10 different loyalty programs they’re signed up for. It seems that loyalty programs are ubiquitous, with every type of restaurant and shop trying to lure customers back in-store with ever-greater frequency.

But how much do you actually know about the basic types of loyalty programs? While there are more than a handful of types when it comes to loyalty programs, most programs fall into one of the following three buckets in one way or another.

So which type is right for your store? Below we’ve outlined the pros and cons behind the three main types of loyalty programs so you can decide which is best for you.

Type 1: Frequency Program – Classic Punch Card

Everyone knows about this one right? It’s your classic buy 9, get the 10th free punch card scheme that businesses have been using since the beginning of time to encourage patrons to visit—and buy—more frequently. And there are good reasons that it’s so popular.

Pros:

It’s simple—customers can’t help but understand how it works.

It’s incredibly low cost to run. A few printed cards and you’re off and running.

It’s easy to set up tiers that reward for ever-increasing levels of purchase behavior.

Cons:

It relies on customers to bring a physical thing with them to the store—sometimes that’s a lot of responsibility for customers.

It’s really easy for customers to cheat the system—a custom whole punch or stamp is very necessary.

Its simplicity is its downfall—you don’t collect any information about customers, or about complimentary purchases, barring any further marketing efforts based on what you learn.

Type 2: Points Program

The second most popular type of loyalty program is a points program (think your airline miles credit card). In this type of program, points are allocated to the customer based on spending behavior.

Pros:

Like the frequency program, it’s also simple to understand for customers—buy X get Y points.

Also easily tiered for customers to achieve even greater rewards for greater purchases.

It’s consistent—there’s no change in rewards for sales. What you spend equals the points you get.

Cons:

This type, more than others, usually makes users have to wait the longest to collect—there’s no instant gratification.

Maintaining the program takes more effort—you have to keep track for customers, and then remind them of where they’re at.

Type 3: Cash Back Program

Another very popular type of loyalty program is the cash back or rebate program. In this type, users earn money back from previous purchase behavior that they can then spend on future purchases, effectively discounting the future purchase.

Pros:

Customers love cash, and accruing cash back is a great way to make a customer feel good about frequenting your business.

Requiring users to spend the reward in your store drives users back for additional visits—always a good thing for a business owner.

It’s simple to understand for customers—spend X, get Y back.

Cons:

Users have to wait to redeem their reward. Cash back rates are usually low so it takes a couple visits for users to build a reward worth spending.

It can be expensive to build rewards since, again, usually the rewards are so low.

If customers come to your store infrequently, this type of program may have less appeal to them.

Have you tried one of these types of loyalty programs in your store or restaurant? Or did you try another type of program? How did it go? Let us know by tweeting to us @FirstData or @hannahkaye with the hashtag #loyalty. Let’s talk loyalty!